When initial contacts by the Internal Revenue Service (IRS) do not result in the successful collection of unpaid taxes, the IRS has the authority to attach a claim to the taxpayer’s assets for the amount of unpaid tax liability. This claim is referred to as a Notice of Federal Tax Lien. The IRS also has the authority to work directly with financial institutions and other parties to obtain from them funds that are owed to the taxpayer. This procedure is commonly referred to as a "levy." The IRS is required to notify the taxpayer that a Notice of Federal Tax Lien has been filed and to let the taxpayer know of the intent to levy.

Taxpayers may appeal the lien or levy action. The appeal hearing is held by the IRS’ office of the Chief, Appeals (Appeals) and is referred to as the Collection Due Process (CDP) hearing. At the CDP hearing, an Appeals Officer ensures the hearing is conducted according to the provisions in the law. Specifically, the Appeals Officer ensures that the IRS followed all applicable laws or administrative procedures. The taxpayer may raise relevant issues and defenses as well as collection alternatives. The Appeals Officer must then determine whether the proposed collection action balances efficient tax collection with the taxpayer’s legitimate concerns. The CDP program was implemented in January 1999 and, as of October 1, 2000, Appeals reported issuing over 4,600 determination letters to taxpayers presenting the results of CDP hearings.

The Treasury Inspector General for Tax Administration is required to determine annually if the IRS complied with the legal guidelines and required procedures for the filing of a notice of lien or a notice of intent to levy and the right of the taxpayer to appeal. The objectives of this audit were to determine if the IRS effectively implemented the provisions of 26 U.S.C. §§ 6320 and 6330 when taxpayers exercised their right to appeal the filing of a lien or the intent to levy and to determine if Appeals Officers timely contacted taxpayers and worked CDP cases to minimize taxpayer burden.

Results

Appeals has implemented the provisions of 26 U.S.C. §§ 6320 and 6330 for ensuring that taxpayers’ rights are protected when they exercise their right to appeal a lien or levy action. Appeals updated its guidelines to include procedures for CDP hearings and initiated a training program to provide employees with the skills and knowledge needed to understand and work collection issues.

Appeals generally complied with the requirements of the law and ensured taxpayers’ CDP rights were protected for the 66 CDP cases we reviewed during this audit. While Appeals complied with the law when providing taxpayers with their CDP appeal rights, improvements can be made to provide better customer service by ensuring:

Appeals Officers timely contact taxpayers and work cases.

Appeals Officers outline in the determination letters all provisions of the law considered in the decision.

Appeals Implemented the Requirements of the Law

In the 66 cases we reviewed, Appeals Officers complied with the requirements of 26 U.S.C §§ 6320 and 6330. The hearings were conducted by an Appeals Officer who had no prior involvement with the unpaid tax. The Appeals Officers generally:

Obtained verification that the IRS followed the applicable laws or administrative procedures.

Considered the specific challenges raised by the taxpayers.

Considered whether the proposed collection actions properly balanced the need for efficient collection of taxes with any legitimate concerns of the taxpayers about the intrusiveness of the liens or levies.

The Appeals Officers also considered other collection alternatives, when appropriate.

Appeals Should Improve Its Timeliness in Contacting Taxpayers and Working Cases

Appeals Officers did not always timely contact taxpayers after cases were assigned, and case files had periods of unexplained inactivity. For the 66 CDP cases we reviewed, Appeals Officers assigned to the cases took an average of 54 days (from less than 1 day to 281 days) to contact taxpayers. In 13 cases, there was no documentation of any contact with the taxpayer or any activity on the case for periods of 60 to over 150 days after assignment. Also, 12 case files had unexplained gaps in activity of 60 to over 150 days after the taxpayer had been contacted.

Delays in contacting taxpayers and working cases lengthen the time it takes for taxpayers to receive their appeal results. Inventory records indicate that Appeals averaged approximately 6 months to issue determination letters to taxpayers after the cases were assigned. Appeals Officers spent, on average, only 11 hours working these cases.

Although some initial delays were inherent as Appeals Officers gained an understanding of a new program area, we believe delays will continue unless Appeals establishes time standards for making first contacts and working cases. We believe it is reasonable that an Appeals Officer contact a taxpayer within 30 days after case assignment. Appeals is scheduled to implement a closed case quality review program in Fiscal Year 2001 but has not established a specific criterion for measuring the timeliness of case resolution.

We believe that these delays may have contributed to taxpayers’ dissatisfaction with the Appeals process. Appeals Customer Satisfaction Surveys have consistently identified timeliness as the primary cause of dissatisfaction among those taxpayers who completed the surveys. In the July 2000 survey, the top three areas identified as needing improvement were the length of the process, the time to hear from Appeals, and the time to schedule an Appeals conference.

Appeals Should Ensure That Determination Letters Outline All Provisions of the Law

Although Appeals Officers made the appropriate determinations in the 66 CDP cases we reviewed, approximately 14 percent (9 of 66) of the determination letters provided to taxpayers did not completely outline all provisions of the law considered in the decisions. This occurred because the program was relatively new, not all Appeals Officers had received CDP training, and the closed case quality review had not been implemented.

The CDP Program began in January 1999, and four of the eight Appeals Officers who worked the nine cases had not received CDP training before they worked the cases. Appeals initiated its CDP training efforts in February 1999. Since then, the training has been revised and improved to include more collection issues and procedures. In addition, although Appeals is scheduled to implement a closed case quality review program, specific criteria for reviewing determination letters have not been established.

It is important that the letters provided to the taxpayers fully explain the basis for Appeals’ determinations and address all relevant issues. Failure to comply with these requirements could have an adverse affect on taxpayer rights. The letters should demonstrate to the taxpayers and any reviewing courts that all the laws and regulations were followed and all the relevant facts presented by the taxpayers were considered.

Summary of Recommendations

Appeals should establish timeliness standards for making first contacts with taxpayers and for working cases. The closed case quality reviews should address these timeliness standards. In addition, the closed case quality review should include criteria to ensure that determination letters include all provisions of the law considered in the decisions.

Management’s Response: Appeals management responded that they could enhance customer service in several areas. They agreed that Appeals does not have specific time frames for contacting taxpayers or working cases. However, management believes that establishing specific guidelines for working cases is not appropriate considering the wide variety and complexity of issues. Instead, Appeals management will send acknowledgement letters to taxpayers within 30 days, provide ongoing review and feedback from its Appeals Quality Measurement System (AQMS), and improve timeliness by reporting quarterly on all cases not closed within 180 days of assignment. In addition, Appeals will develop and distribute a guide on the proper preparation of determination letters and will include specific guidelines for CDP cases in the AQMS.

Management’s complete response to the draft report is included in Appendix VI.